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NZ dollar: all eyes on RBA Governor’s testimony to Parliament

Friday 19th February 2010

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Australian Reserve Bank governor Glenn Stevens's testimony to Parliament in Canberra today will be a key event for the New Zealand dollar today.

Stevens is to give his assessment of the Australian economy as speculation mounts over whether he’ll hike interest rates next month.  

The so-called ‘lucky country’ avoided a recession last year as demand for raw materials in China underpinned the strength of Australia’s economy, and investors are picking Stevens will continue to cite the Chinese economy for a bullish assessment of the environment.  

The RBA surprised markets this month when it held its benchmark interest rate at 3.75%, though traders are expecting the central bank will go again when it meets next month. Australia’s central bank began hiking rates in October, the first G-20 nation to embark on a tightening policy, and began the divergence with its New Zealand counterpart, which isn’t expected to begin raising the official cash rate until the middle of this year.  

“The RBA Governor is ... likely to be fairly bullish," said Mike Jones, strategist at Bank of New Zealand.

“The risk for the kiwi is for a bit of a leg higher” on the back of any Australian dollar strength, he said.  

The kiwi rose to 70.39 US cents from 69.93 cents yesterday, and gained to 65.23 on the trade-weighted index of major trading partner currencies, from 64.95.

It rose to 64.22 yen from 63.59 yen yesterday, and edged up to 78.20 Australian cents from 78.13 cents. It increased to 51.70 euro cents and climbed to a month-high 45.08 pence from 44.80 pence.  

Jones said the currency may trade between 69.90 US cents and 70.80 cents today amid the stronger prospect for its trans-Tasman neighbour, though he also predicts today’s credit billings data for January will be slightly better than the previous month.  

The kiwi climbed over 45 pence for the first time since January 19 after weak UK public finances figures raised the spectre of the country losing its triple-A rating.

The government’s net borrowing requirement was 4.3 billion pounds, well short of the expected 2.3 billion surplus.  “UK public finance figures were nothing short of terrible,” Jones said of the first January deficit since records began in 1993.

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